1. Florida Politics

'Toxic' times: How repeal of Florida's tax on services reverberates, 30 years later

Robertson says the tax debate is now “toxic.”
Robertson says the tax debate is now “toxic.”
Published Sep. 22, 2017

TALLAHASSEE — Long before Hurricane Irma attacked Florida, the state faced a troubled fiscal future that the storm will only make worse.

"A looming problem," in the words of Amy Baker, the Legislature's top economist, whose pre-Irma numbers exposed "a structural imbalance."

Simply put, Florida won't collect enough tax revenue over the next three years to pay its mounting bills, especially for Medicaid, which now consumes nearly one-third of the state's budget. Tossing a splash of reality into the faces of lawmakers, Baker said Irma will make it "much worse."

In the weeks and months ahead, many Floridians will buy new cars, clothing and furniture to recover from Irma. That will generate a short-term uptick in sales tax revenue, but it's mostly a mirage.

As Baker noted in a long-range state economic outlook, a series of storms in 2004 and 2005 shows that the long-term cost will be higher, a reflection of the boom-and-bust nature of Florida's economy that has been built on consumer buying ever since the arrival of the 3 percent sales tax in 1949.

The future could mean cuts to schools, hospitals and treatment programs, fewer state workers, and higher fees for services.

What it won't mean is higher taxes, or even substantive change to the state tax system to produce more money to run the nation's third-largest state.

They tried that once in Tallahassee 30 years ago, and they won't do it again.

It ended so badly that, to this day, it is still blamed for derailing political careers, so it is a subject to be avoided at all costs.

"It's toxic," said Glenn Robertson, a native of St. Petersburg who was state budget director in 1987. "The politics of the issue makes it impossible to talk about it."

Florida, one of seven states without a personal income tax, stood at a crossroads in 1987.

Highways, schools and prisons were all at or close to a breaking point. The state had imposed a hiring freeze, and there was talk of letting inmates go free to create space for more.

A new governor, Bob Martinez, a former Tampa mayor, had just been elected Florida's second Republican to hold the office since Reconstruction, partly on a pledge to "sweat" $800 million in waste out of state government.

Instead, he championed the largest tax increase in Florida history.

"I am prepared to take an unpleasant dose of tax medicine this year," Martinez said in his 1987 State of the State address. In words that would later haunt him, he said: "But I do not intend to do it year after year because we did not have the courage to do it right the first time."

That was six years after Time's 1981 cover story about a crowded, drug-infested South Florida that asked and answered its own question: "Paradise Lost?" About 900 people were still streaming into the state day after day, putting an even greater strain on services.

"Florida keeps falling away, piece by piece, mile by mile," was how the New York Times put it. "Residents and public officials increasingly believe that some order must be imposed before the battle is completely lost."

The state faced a choice.

It could keep depending on its sales tax, a large chunk paid by out-of-state visitors, to run schools, social programs, prisons and other services, or it could shift the tax burden from goods to professional services such as accounting and pet grooming, a fast-growing economic sector paid largely by people of higher incomes.

Taxing services would have expanded the tax base while reducing the burden on average people.

"We tax hard goods like refrigerators," said Bob Nabors, a Tallahassee lawyer and tax expert. "And when there's a recession, people don't buy those things and Florida really feels it. A services tax would have been a much more stable source of revenue."

Desperate for a long-term solution, Martinez and a Democratic-led Legislature enthusiastically embraced the 5 percent services tax.

It lasted all of six months.

Under sustained attack by advertisers, lawyers, media companies and real estate agents, Martinez and lawmakers quickly retreated, wiped it off the books and replaced it with a higher sales tax of 6 percent. That remains the staple of state revenue to this day.

"It was one of the worst decisions in recent Florida history," said Sam Bell, a former Democratic House member, appropriations chairman and champion of the services tax. "There's no question, things would be a lot easier right now, trying to anticipate the next budget."

"Martinez folded with a winning hand," Nabors said. "He would have been re-elected in a heartbeat because he would have been seen as enlightened."

But lawmakers hurt their cause by hatching the initial tax deal over pizza and beer at a lobbyist's townhouse, a secret cabal that newspapers reported repeatedly.

The services tax also soon proved to be complicated and difficult to administer. Tax experts in state government were tied up in knots trying to determine how to tax an out-of-state company's services purchased in Florida or how to avoid "pyramiding," or taxing a business that had already paid the sales tax on purchased materials.

Former Rep. Winston "Bud" Gardner of Titusville, who more than any other legislator shaped the tax bill, said not a day goes by that he doesn't still think about it.

"Had we been able to correct the deficiencies in it, it would have been very good for the state," Gardner said. "I think the state would have been well-served."

In a town where politicians are often eager to placate powerful interests by exempting them from taxes, Martinez and the Legislature flatly refused to carve out protections for two groups — Realtors and TV advertisers — who used their money and might to mobilize fierce opposition.

Real estate agents in Florida have well-coordinated mass grass-roots influence and TV stations have direct access to every living room in the state.

"If you view the defense of the services tax as a campaign, then by failing to exempt those two activities we sealed our own fate," said Martinez's chief of staff, J.M. (Mac) Stipanovich, who was forced to resign over the tax fiasco, as his boss' approval rating fell to 19 percent.

Many Florida newspapers, (not the St. Petersburg Times) who would be taxed for the first time along with their ads, protested loudly, even as they faulted legislators on their editorial pages for shortchanging the needs of Floridians.

"We were consistent, we were principled and I thought we were moral," Stipanovich said "Boy, were we stupid."

Martinez never recovered and lost his 1990 re-election bid to Democrat Lawton Chiles.

Bell was in line to be speaker after the 1988 elections, but lost his Daytona Beach-area seat that year.

Now retired after a long career as a lobbyist for children, the poor and disabled, Bell recalled: "After we passed it, it got to be unbearable, and when Martinez caved, it left us just standing out there."

None of today's legislators held office in 1987, and some of them weren't yet of voting age.

To them, the services tax and its repeal is a fuzzy chapter in Florida's political past.

But Senate President Joe Negron, R-Stuart, who was first elected in 2000 and who will shape next year's budget in his final year in office, says there's a lasting lesson from 1987: Leaders should have stuck it out.

"Once a decision is made, it's almost always better to continue with a decision and defend it, rather than capitulate to political pressure," Negron said. "The negative ramifications of reversing course nearly always exceed any benefits."

Only once since 1987 has a legislative leader tried to modernize the tax system in Florida. It, too, ended in failure.

Senate President John McKay, a Bradenton Republican, pushed in 2001 for a review of and elimination of dozens of sales tax exemptions that benefited select business interests while rolling back the sales tax rate. But Gov. Jeb Bush was a fierce and formidable foe and the courts threw the McKay proposal off the ballot.

More typical was the stand taken by former Rep. Johnnie Byrd of Plant City, who on the verge of becoming speaker of the House in 2002 formed a Select Committee on Florida's Economic Future. It concluded: "Any concerns about the adequacy of Florida's tax structure are misplaced."

Byrd and his successors also opposed applying the state sales tax to online purchases of books or computers — even as retailers demanded it for tax fairness.

In today's Florida, Gov. Rick Scott points proudly to the 1,000 people a day who still move into the state.

Scott has consistently pushed for tax cuts and fewer state workers, and tourism has enjoyed a banner year, which means more sales tax revenue paid by tourists, not just residents.

But during Scott's seven-year tenure, working with Republican Legislatures, the state budget has grown steadily, from $70 billion to $82 billion.

At the same time, warning signs abound, from rampant turnover at the Florida Highway Patrol due to low starting pay to low staffing levels in state prisons that have put the safety of correctional officers at risk.

Robertson, the former state budget director, said the arguments in favor of a broad-based services tax 30 years ago are just as relevant today.

Using Congressional Quarterly's annual publication, State Rankings, Robertson notes that Florida ranks at or near the bottom of states in various categories, such as per capita spending for education, high school graduation rates and the number of state workers per 10,000 residents.

"The fact that we repealed it took away the opportunity for a more stable revenue base. We missed an opportunity," Robertson said. "It was a grand experiment, and it died, and no one is ever going to do it again."

Contact Steve Bousquet at sbousquet@tampabay.com. Follow @stevebousquet.


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